By Economics Correspondent Seán Whelan @seanwhelanRTE

This might just be the speech of the year.  Andrew Haldane, the Executive Director of the Bank of England in charge of Financial Stability, and a top policy making official at the bank, went to a meeting organised by Occupy Economics last night, and said “Occupy has been successful in its efforts to popularise the problems of global finance for one  very simple reason: they are right”.

Furthermore he told them Occupy’s voice had been both loud and persuasive, and that policymakers have listened and are acting in ways that will amount to what he described as a “reformation of finance”.

Mr Haldane said Occupy was not just right in the moral sense – pointing to the growing inequalities in the allocation of wealth and income globally – something the 99% agrees with, but Mr Haldane claims, a high and rising share of the 1% also agrees.

But he said it was Occupy’s analysis that was if anything more convincing, for the hard headed facts suggest to him that at the heart of the global financial crisis were (and continue to be) problems of deep and rising inequality.

“We have seen first inequality induced crisis and, latterly, crisis induced inequality.  The 99% have faced double jeopardy”, he said.

He cited  James Galbraith’s book,” Inequality and Instability”, which argued that the biggest cause of rising levels of inequality in the US was the asset price boom that started in the early 1990s.  The asset rich – particularly the owner-occupying rich – became a lot richer, but the rising tide did not lift all boats.  The asset-less and the indebted fell further behind.  In other words Haldane says the pre-crisis property boom acted like a regressive tax.

The response to this problem was to try and make everyone an asset-holder and owner-occupier.  But those assets had to be financed by debt, leading to an era of ultra-cheap credit that was very widely available by historic standards.

The banks invented lots of new credit, became extremely profitable, and the bankers paid themselves outrageously well.  In 1989 the CEO’s of the largest US banks were paid 100 times the median US household income – by 2007 that multiple had risen to 500.

But Haldane argues this caused a huge amount of damage to the economy even before the bust, as vast amounts of money and human talent were drawn into the banking industry at the expense of other parts of the economy. “A generation of scientists and mathematicians heads were turned towards finance” he said.

But that’s not all – and he describes as “a great sucking sound” that accompanied the rise of finance.  “The sectors hardest hit by this financial vacuum-cleaner effect are the R&D-intensive businesses (who might otherwise have attracted the scarce, skilled labour that flowed into finance) and businesses reliant on external funds (whose financial cake was instead being eaten by the banking system).  These are the very businesses that today we are seeking to re-nurture”.

This lesser known damage to the economy caused by the rise of the financial sector is being probed by the Bank of International Settlements, which suggests that when bank assets exceed annual GDP, they begin to act as a drag on growth.

Then there are the better known damages inflicted by the financial crisis itself – the four million American who have lost their homes, the millions more worldwide who can only support their debts at near zero interest rates – “zombies caught in a debt trap”, as the man from the Bank of England describes them.  “The returns to finance were privatised in the upswing, and the risks then socialised in the downswing.  Having lost out on the swings, the 99% have been forcibly ejected from the roundabouts”.  Yes, you are reading this correctly – this is a speech by an executive director of the bank of England, not an unshaven hoody-clad youth with a dog on a string.

He says while some individuals were undoubtedly to blame for some of the damage, he sees the financial crisis as primarily one of a system with built in incentives for self-harm.  Avoiding those self- destructive tendencies – too much borrowing, poor governance, sky high pay and bonuses, lack of competition – means changing root and branch the incentives and culture of finance.  In short, a financial reformation.

He sets out a number of areas for change – some of which are progressing rapidly – in the speech, and says that while they may not sound much individually, added together he believes they will amount to the most radical agenda of financial reform in 80 years.

He finishes by telling us, the public, that we too can play a role in changing the face of finance – by supporting banks that are delivering change.  “Putting your money where your mouth is would deliver far greater and more durable change than any amount of banker-bashing”, said Mr Haldane, who went on to ask the Occupy Movement for their continuing support for policymakers delivering radical change.

Read Andrew Haldane’s speech to the Occupy movement here –